Short Sales

shortsale1 Short Sales

Homeowner Course of Action Results: Short Sale

Sometimes the best way for you to prevent a foreclosure is by completing a short sale. A short sale occurs when a bank agrees to accept a payoff that is less than the mortgage balance.

For example, if a homeowner has a defaulted mortgage loan with the bank in the amount of $200,000, but the property is only worth $160,000, the bank may allow the homeowner to sell their property to a qualified buyer for the current value of the property and, in some cases, forgive the amount on the unpaid balance.

timeline Short Sales

Foreclosure and the short sale process are two independent processes. Foreclosure is a legal process where banks remove the homeowner’s right to redeem their mortgage due to their inability to continue making mortgage payments. Foreclosure is initiated by the bank when homeowners miss their mortgage payments.

If the homeowner is unable to bring the mortgage current, the property will be sold at their county’s public auction and the homeowner will be evicted. If you are in default on your mortgage payments the foreclosure process will inevitably be initiated by your bank.

Foreclosure alternatives like loan modifications and short sales were created to offset banks’ monetary losses resulting from foreclosure. The Mortgage Bankers Association reports losses in excess of $50,000 on each foreclosed home, or as much as 30 to 60 percent of the outstanding loan balance.

Banks are able to save significant amounts of money if they work with homeowners that are willing to participate in a foreclosure alternative. It is important to understand that foreclosure is automatically initiated by the bank when a loan is in default.

Foreclosure alternatives must be initiated by the homeowner, not the bank.

I understand most homeowners facing foreclosure are confused and misinformed regarding their rights and options. Stress begins to mount as collection calls from their lender increase and the date when they will ultimately lose their home draws near.  I can help you properly evaluate your situation, and give you the confidence needed to take control of your situation.

I work with a team of short sale professionals who use innovative tools and proven strategies that help you communicate more effectively with your banker. We are all licensed professional real estate agents who stick to a strict code of ethics and standards and agree to exemplify these core values.

This is how I can promise you will receive the highest level of professional care and service.

Qualifying For a Short Sale

In order to qualify for a short sale, qualifying homeowners will demonstrate the following prerequisites:

  1. The listing agent sends the lender a 3rd Party Authorization Form. The form authorizes the agent to receive information on the mortgage account on the homeowner’s behalf.
  2. Once an offer is received and approved by the homeowner from a pre-qualified buyer, the homeowner will need to prepare a list of documents for their agent to submit to the bank in order for the short sale to be reviewed. This may include income tax returns, bank statements, paycheck stubs, and other financial disclosures.
  3. The offer is sent to the lender by the listing agent along with the homeowner’s financial documents. This is called a “short sale package” and is referred to at the bank as a “file.”
  4. The file is assigned to a bank negotiator.
  5. The bank sends an independent licensed real estate broker to the homeowner’s property to perform a valuation called a Broker’s Price Opinion (BPO). This is not typically a full appraisal, but it is performed to give the bank a general snapshot of the property value and overall condition.
  6. The BPO agent sends the valuation to the lender.
  7. The short sale package and BPO are reviewed by the lender and their investor.
  8. The bank decides to either approve or reject the homeowner’s request for a short sale.
  9. In the case of an approval, a written acceptance is sent to the homeowner for review and the buyer initiates their mortgage-loan approval process.
  1. The buyer performs their inspections and they close on the property.

Short Sale: Step-by-Step

shortsale Short Sales

 

The majority of the tasks performed throughout the short sale process will be completed by the seller’s listing agent. It is customary for the bank to deal with a qualified real estate agent in a short sale.

The diagram above illustrates the short sale timeline. This section of the page will highlight what happens at each stage of the process and what might be expected of the homeowner:

Benefits From Completing a Short Sale

From the time I get authorization to speak on your behalf with the lender and send in all of your documentation, to the moment you receive the approval letter, the short sale process typically takes around 90-120 days to complete. Some banks process short sales more quickly than others; however, the timeline above shows the time it takes in general to process a short sale

Not only does the bank minimize their losses by allowing homeowners to sell their homes as a short sale, but the homeowner also stands to gain financial stability through this process.

Here’s a few other ways you might benefit from completing a short sale:

  • You can rebuild their credit rating more quickly having gone through a short sale compared to going through the entire foreclosure process. Since your credit rating reflects the manner in which you repay borrowed money, missed mortgage payments will cause the score to decrease with each missed payment. You’ll miss fewer payments during the short sale process compared to going through a lengthy foreclosure.
  • You can qualify on a new mortgage loan sooner after a short sale than if you had gone through a foreclosure. According to Fannie Mae underwriting guidelines, homeowners who go through foreclosure have to attain a 680 credit score rating, make a 20% down payment, and wait five years in order to qualify for a new home loan. Homeowners who chose to short sale their home only have to wait two years and do not have to attain a minimum credit rating or come up with a minimum down payment in order to get approved for a new home loan.
  • You may also benefit from the Mortgage Forgiveness Debt Relief Act of 2007. This bill states that the IRS can no longer tax a homeowner on the difference left over from a short sale based on a few conditions. You should consult with your tax preparer or attorney to see if you qualify.

If you have any questions regarding the best course of action for your situation, contact me and schedule in-home consultation.